Late payments threaten contractors' GCC expansion
Delayed collections affect contractors' liquidity and profitability
Continued late payments from developers are threatening UAE contractors’ expansion plans, according to the industry’s biggest players.
By reducing companies’ liquidity, late or delayed collections make it difficult for contractors to take on projects in new regions where it would normally not be expensive to start a development.
Since the beginning of the recession, most contractors in the GCC have had to wait long periods for payments from cash-strapped developers, many even walking off-site as a result.
CFO of Arabtec, Ziad Makhzoumi said: “In theory you need very little cash to start new major projects. When we went to Saudi Arabia for example, and we went into partnership with a very good partner, the payment terms were quite favourable so we didn’t need much cash to start off initially.
"The problem is when labour collects and then you need more liquidity."
He added: “Since the beginning of the recession, everybody has suffered from collection problems, most payments never on time, and last year there were rumors in the market that certain developers were expecting a discount on receivables or to re-schedule payments.
“The problem is that collection affects your liquidity. Our liquidity has been affected by late payments - a year and a half ago we had much more money in the bank.”
Among recent late payment disputes, the most notorious is that between Dubai World owned developer Nakheel and its trade creditors.
Earlier this year, the firm offered to pay back 60% of its debt in sukuk and another 40% in cash, though it is still waiting on 15% of trade creditors to accept the proposals.
Arabtec and Halcrow, among other creditors, are hoping to reach a deal with Nakheel within the coming months.
Halcrow Middle East’s managing director David Yaw, told The National earlier this year that his company’s exposure to the Nakheel debt crisis was “enough to hurt but modest” compared to the firm’s “overall exposure in the region”.
Last year, Halcrow reported a 57% fall in profits due to late payments from developers, and was forced to axe as many as 60 jobs across its Middle East division.